A new report from AM Best’s market segment series, entitled Canada Insurance: Positive Results Expected Despite a Slowing Economy, shows that Canada’s property and casualty (P&C) industry reported a fourth year of underwriting profitability and solid risk-adjusted capitalization in 2022, while Canada’s life and annuity insurers posted generally favourable operating results.
The report, an extensive look at current economic activity, monetary policy, consumer debt (consumers are drawing down on accumulated savings or taking on more debt rather than altering their spending behaviour, the report states) and business sentiment, also examines both industry’s challenges.
For P&C insurers, the report references elevated catastrophe activity – the third worst year in history for the industry – along with unprecedented inflation, capital markets volatility and substantial reinsurance pressures on terms and conditions.
“Insurers will need to remain aware and continue to enhance their underwriting, risk-appetite and overall enterprise risk management programs while remaining vigilant about price increases, to adapt to the growing impact of climate related events,” they state, adding that in 2022, approximately 96 per cent of AM Best rated P&C companies had financial strength ratings of either superior or excellent.
“Market conditions remain complex, but Canada’s P&C industry was profitable and results were within our expectations for modest earnings growth in 2022, despite volatility and a moderate decline in net income, following a record year of outsized investment performance in 2021 and within our expectations that earnings growth would moderate in 2022. Net income was a healthy $6.6-billion and well above the reported results of the last five years, other than in 2021,” they write. (The report also discusses cyber risk, mergers and acquisition activity and technology benefits.)
Both P&C and life and annuity insurers prepared for the adoption of new international financial reporting standards, IFRS 17, which they say had a muted impact on equity overall.
For life and health insurers, they say favourable earnings and underwriting, helped by rising interest rates and favourable mortality trends, despite higher expenses, have all helped life and annuity insurers post generally favourable operating results. They note that participating whole life and fixed-rate annuities have experienced record sales in Canada and the United States in the past year. They also note that mortality results continue to decline from pandemic highs. All of Canada’s life insurance companies have financial strength ratings of excellent or higher.
They say pre-tax net income for life and annuity insurers was $19.3-billion, in line with 2021 results, with after tax results coming in at $15.7-billion, a decline of $200-million over 2021.
“Overall earnings remain bolstered by investment gains which should continue to improve as carriers turn over their portfolios to take advantage of the rise in interest rates that began in late 2021,” they add.
